Taco Monday

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Global week in review: Iran hopes flicker

Global stocks remained under pressure last week, with early hopes for a ‘TACO moment’ soon replaced by confusion and concern about whether the Iran war will end anytime soon.

Last week began with a sense of dread, following US President Donald Trump’s weekend threat to begin targeting Iranian electricity infrastructure if the Strait of Hormuz was not opened within 48 hours. But as the deadline approached, Trump issued an 11th hour reprieve on Monday (US time), delaying any assault and announcing that talks had begun to end hostilities. 

Iran, however, soon pushed back suggesting this was “fake news“. By week’s end, it was clear the two sides were talking (for instance, through intermediaries such as Pakistan). US troops are still heading towards the region, and Iran continues to strike selected targets. By the end of the week, we remain in a state of flux: Trump has blinked but the Iranians don’t yet seem overly willing to allow him a face-saving exit.

Accordingly, global equities ended the week lower while oil prices firmed. Some oil is getting through the Strait of Hormuz, but not enough to ease mounting pressure on global supply. So far, the supply from shipments that had already cleared the Strait before hostilities broke out is still quenching a thirsty global market – but this will soon run out if new supply does not get through. The clock is ticking. 

Global week ahead: Iran and US payrolls

Iran will remain the centre of attention this week, with markets awaiting news on any progress in the talks. There’s still a risk of things worsening before they improve – with the worst case scenario involving tit-for-tat attacks on energy infrastructure and a deepening conflict involving US “boots on the ground“. Compounding risks, Iran-backed Houthi involvement could further disrupt global shipping routes – particularly through the Red Sea, a key conduit for oil and trade flows.

Given the likely surge in oil prices (and collapse in Trump’s popularity), this still seems unlikely – but he’ll still need a credible way to claim victory and move on otherwise. 

Elsewhere, US payrolls will be released on Friday. After a surprise 92k drop in February, US employment is expected to bounce back but only by a modest 56k in March. This would keep unemployment steady at 4.4%. Another surprisingly weak result would add to concerns over the economy and increase political pressure on Trump to extricate himself from the Iran war as soon as possible. 

Australia in review: soft February monthly CPI

The main local highlight last week was the February monthly consumer price index (CPI) report. The report was a touch better than expected, with annual trimmed mean inflation at 3.3% (market 3.4%), which was in line with the downwardly revised January result of 3.3% (previous 3.4%).

Of course, this followed an initially firm January report and again highlighted the difficulty in assessing monthly inflation trends given still-uncertain seasonal patterns. The RBA will take only a little solace from the result and remain focused on the late-April March quarter CPI report. As it stands, the market assigns around a 70% probability to another May rate hike (which is my base case).

Australia week ahead: RBA minutes, job vacancies  

We’ll potentially learn more about the RBA’s recent decision to raise interest rates with the release of the meeting’s minutes tomorrow.

Of particular interest is the extent to which the March decision really amounted to a bring forward of the May decision, given Governor Michele Bullock suggested in her press conference that all Board members agreed on the need to raise rates further – but that only some wanted to delay the decision to May.

We’ll also get a sprinkling of local economic releases, including house prices, job vacancies, building approvals and private credit growth. Overall, these reports are likely to suggest underlying demand remains fairly firm – allowing the RBA to remain focused on upside inflation risks. 

Have a great week!